Wall Street wilts as new stimulus talk stokes fears

U.S. stocks fell on Tuesday as talk of a second government stimulus plan stirred fears that the economy is far from well, raising the specter of an anemic second quarter earnings season.

A member of the Obama administration's economic advisory panel said the United States should plan to possibly provide a second round of stimulus funds to prop up the economy, implying that recovery is still far off.

I think it's insane, the first stimulus package has not even been spent yet, said Andre Weisbrod, president & chief executive of Staar Financial Advisors in Pittsburgh.

They are creating what I would call the government bubble ... When that bursts we are in huge trouble.

The recent rotation into non-cyclical areas of the market continued as investors sought out companies better positioned to weather a weak economy.

But cyclical stocks in the materials, energy, and industrial sectors, which have ridden a recent upswing in raw material prices, lost ground as commodity prices eased as hopes dimmed of a quick recovery. Copper, a barometer of global economic strength, fell nearly 2 percent.

A preview of the second-quarter performance of natural resource companies will come on Wednesday when Alcoa Inc kicks off quarterly earnings season. The aluminum producer, a Dow component, is expected to post a third consecutive quarterly loss.

Doubts about the strength of an economic recovery and subsequent demand for oil have sent crude prices tumbling in the last week. New York crude fell 1.5 percent on Tuesday and is down about 14 percent from the intraday peak hit on June 30. Its slide has pressured energy stocks.

A rally in the broad S&P 500 index that had boosted it about 40 percent from 12-year lows hit in early March has wilted in the last month as investors sought stronger evidence that economic conditions were improving.